Shell to Expand CNOOC Petrochemical Venture in Southern China

  • Companies are building new ethylene cracker, chemical units
  • Expanded venture expected to start operations in two years

Royal Dutch Shell Plc. is expanding its petrochemical venture in southern China with China National Offshore Oil Corp.

The two companies signed an agreement Tuesday to double the capacity of their equally held ethylene-cracking facility in Guangdong province to 2 million metric tons a year and add other chemicals units, Shell said in an e-mailed statement. The new facilities are expected to start operation in two years, it said, without providing a figure on the cost of the expansion.

The joint venture in Huizhou City was established in 2000 with investment of $4.1 billion and began operating in 2006, according to the statement. The area is also home to a CNOOC refinery -- where capacity will be expanded to 22 million tons a year in 2017 from 10 million tons -- that supplies the chemical venture with naphtha as a feedstock.

"The joint venture chemical plant can get feedstock supplies from CNOOC’s refinery nearby, so its profit margin will remain decent," Jean Zou, analyst with ICIS China, said by phone from Guangzhou. "This expansion by Shell and CNOOC has been planned for some years."

The renewed commitment to the Huizhou venture comes after Shell said Monday it would cut about 2,800 jobs to meet a pledge of reducing operating costs by $3.5 billion following its takeover of BG Group Plc. It has also halted projects in Canada and the Arctic, and is reviewing its investments in New Zealand. The company reported its biggest net loss in more than a decade in October amid a plunge in oil prices.

— With assistance by Jing Yang

Before it's here, it's on the Bloomberg Terminal. LEARN MORE